AMT credits allocated in a consolidated group.

• Author: Yelvington, Brenda
• Position: Alternative minimum tax

The IRS has issued proposed regulations that provide rules for determining a consolidated group's alternative minimum tax (AMT) liability (its consolidated AMT) and for allocating various consolidated AMT attributes to members of the group. As is the case for a single corporation, the consolidated group computes the regular tax liability and compares this to the AMT liability, paying the higher of the two. One might think that the group's consolidated AMT is merely a summation of each member's AMT on a separate-company basis; however, this is not necessarily the result.

The charts on pages 472-473 present a calculation for corporations A, B and C. The corporate exemption of $40,000 is ignored and the regular tax rate (RT) is assumed to be 34% in all illustrations.

Separate-company basis

On a separate-company basis, in chart 1, A owes a total of $600 in tax. This includes $408 in regular tax and $192 in AMT. B has both a net operating loss for RT and AMT purposes. Therefore, B does not have any tax liability for the year. Since C's tentative minimum tax (TMT) is less than its RT, C does not have any AMT.

Consolidated basis

What would happen if A, B and C were all members of an affiliated group that files a consolidated return? if the consolidated AMT for the group were computed as the total of the separate-company AMTs, the liability would total $192.

According to Prop. Regs. Sec. 1.1502-55, this is not the proper computation. Instead, the consolidated AMT is determined based on consolidated alternative minimum taxable income (AMTI) (Prop. Regs. See. 1.1502-55(a)(2)1. Each member must compute its separate AMTI (Prop. Regs. Sec. 1.1502-55(b)(2)(ii)). The total of each member's separate AMTIs is the consolidated AMTI. The AMT is then computed based on the consolidated AMTI (Prop. Regs. Sec. 1502-55(a)(2)).

With A, B and C, see chart 2 for the AMT calculation.

On a separate-company basis, the three corporations have a total AMT liability of $192. Yet, when the companies are combined, the total AMT liability is $220. The increase in the AMT liability is due to A's and C's large amount of AMT adjustments and preferences. On a stand-alone basis, C has enough regular taxable income to avoid the AMT. However, when it is combined with the other members of the group, the total taxable income is not large enough to outweigh the AMT adjustments and preferences. Therefore, a greater consolidated AMT results.

The extent to which a company's AMT exceeds...